Training manual economic valuation and environmental assessment



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Training manual

ECONOMIC VALUATION

AND

ENVIRONMENTAL ASSESSMENT

John Mburu (editor)

Contributors:

Richard Abila, Iason Diafas, Paul Guthiga, Richard Hatfield,

Serah Kiragu and Cecilia Ritho






Acknowledgement

The preparation of this training manual has been funded by the German Ministry of Education and Research (BMBF) through Subproject E13 of the BIOTA-East Africa Project and accomplished through the cooperation of the Center for Development Research (ZEF) and IUCN - The World Conservation Union-Eastern Africa Regional Office (IUCN-EARO)




About the Training Manual Authors

John Mburu is a Senior Research Fellow, Center for Development Research, University of Bonn

Richard Abila is Assistant Director, Kenya Marine and Fisheries Research Institute, Kisumu

Iason Diafas is PhD Fellow at the Center for Development Research, University of Bonn

Paul Guthiga is PhD Fellow at the Center for Development Research, University of Bonn.

Richard Hatfield is Senior Program Design Officer with African Wildlife Foundation

Serah Kiragu is Programme Officer with IUCN – The World Conservation Union.

Cecilia Ritho is a Lecturer with the University of Nairobi

Preface
This training manual is aimed at policy-makers and practitioners involved in the conservation and management of natural resources. It is meant to equip senior and mid-level ministerial personnel, staff members of conservation state corporations and representatives of NGOs and CBOs in Kenya with basic principles of environmental economics and valuation techniques in order to endow them with the necessary skills for assessing and justifying the importance of biodiversity conservation.
The manual is organized in three parts. Part A consists of the first three chapters and provides an introduction to basic ecological and economic concepts that are relevant to valuation and assessment of natural resources. Part B offers a detailed discussion of valuation concepts and methods or techniques applied in economic valuation, while part C delineates decision-making criteria that can be applied in environmental assessment. These include environmental impact assessment (EIA), a number of cost-based methods as well as cost-benefit analysis, which considers both benefit and cost streams.
The primary emphasis of this manual has been placed on natural resources (forests, wildlife, wetlands, etc.) and the biodiversity within them, but it can also be applied to all renewable and non-renewable resources as well as to environmental aspects such as pollution control, water and sanitation, and general public health. Although the manual is not exhaustive, it offers a catalogue of several important approaches to economic valuation and practical decision-making, providing empirical examples that support the theoretical discussions. It is hoped that the manual will positively contribute towards understanding the economic value of natural resources and biodiversity and hence promote their conservation and sustainable use.
Table of Contents

Preface: ………………………………………………………………………….. ii




TABLES vi

FIGURES vi

Part A: Introduction to Ecological and Economical Concepts 1

1. Natural Resources and Biodiversity 1



0.1 Types and definitions of natural resource 1

0.2 The significance of differing resource characteristics 2

0.3 Definition of biological diversity (biodiversity) 2

Box 1. What is biological diversity? 3



0.4 Ecological services and functions of biodiversity 4

0.5 Major threats and challenges to biodiversity conservation 9

0.6 Discussion questions: 10

2. Economic Theory and the Problem of Resource Allocation 11

2.1 The rational of economic theory 11

2.2 Why economics of natural resources 12



2.3 Natural resources as scarce resources 13

2.4 Economic criteria for decision making in solving NR problems 15

2.5 Economic valuation and the demand curve 19

2.6 Negative externalities as a source of natural resource problems. 21

2.7 Discussion Questions 23

3. Policy, Market and Institutional Failures in Natural Resources Conservation 25



3.1 Introduction 25

3.2 The importance of non-market institutions 26

3.3 Market failures 28

3.4 Sources of market failures 29

3.5 Property rights regimes and emergence of different management approaches of natural resources 31

3.6 Political economy considerations 36



3.7 Discussion questions 36

PART B: Economic Valuation Concepts and Methods 37

4. Introduction to Economic Valuation of Natural Resources and Biodiversity 37

4.1 Definition of economic valuation and its importance 37

4.2 Historical perspective of economic valuation 41

4.3 Introduction to differents concepts of value 42

4.4 Measurement of economic value 44

4.5 Choice of methods of economic valuation 47

4.6 Discussion questions 49

5. Revealed Preference Methods 50

5.1 Market-price based approaches 50

5.2 Human capital approach 54

5.3 Production function/ Change in productivity method 55

5.4 Travel cost method 57

5.5 Hedonic pricing method 60

5.6 Preventive expenditure/ Damage avoided/ Replacement costs approaches 63

5.7 Discussion questions 66

6. Stated or Expressed WTP Methods and Benefits Transfer 67

6.1 Contingent Valuation 67

6.2 Choice Experiments 73

6.3 Choice modeling versus contingent valuation 76

6.4 Benefits transfer method 77



6.5 Dicussion questions 78

7. Measuring Costs of Conserving Natural Resources and Biodiversity 80

7.1 Management costs 80

7.2 Opportunity costs of conservation 82



7.3 Other (external) costs 83

7.4 Discussion questions: 83

Part C: Decision Criteria in Practice 85

8. Environmental Impact Assessment (EIA) 85

8.1 Introduction to Environmental Impact assessment (EIA) 85

8.2 Overview of EIA Processes 88

8.3 EIA Methods And Tools 93

8.4 EIA and Biodiversity 96

8.5 Environmental Audits 102

8.6 Environmental Impact Assessment: Case Studies 102

8.7 Discussion questions 105

9. Cost-Benefit Analysis (CBA) 106

9.1 Stages of conducting cost 106

9.2 Major challenges of conducting CBA 109

9.3 Social or distributive analysis in CBA 110

9.4 Examples of Application on CBA in natural resources 110

10. Other Decision-Making criteria 112

10.1 Cost-Effectiveness Analysis 112

10.2 Multi-criteria analysis 114

10.3 Precautionary approaches 115

10.4 Moral Approaches and Environmental Ethics in Decision Making 118

10.5 Discussion questions 119

References 120

Appendix 1: Evaluating the welfare effects of improved water quality using the choice experiment method (Abou-Ali and Carlsson, 2004) 123

1 APPENDIX 2: A Financial and economic model for estimating annual use values of forest resources. 127



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